Insurance companies typically determine insurance premiums and rates for applicants based on the process of underwriting. In other words, underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. For example, life insurance underwriting involves determining an individual's relative mortality and health insurance underwriting involves determining an individual's relative morbidity. And as part of the underwriting process for life or health insurance, medical underwriting and other factors (e.g., age and occupation) are used to examine the applicant's health status.
Several sources of medical and nonmedical data exist for use in the underwriting process. For example, a life or health insurance company often has internal records from previous policies, application data for a currently proposed policy, and data available from external sources such as hospital and physician records, and prescription drug usage services. The hospital and physician data can take the form of Electronic Medical Records (EMR) or Patient Medical Information (PMI) files (including Attending Physician Statements (APS)). And commercial inspection companies make available to insurance companies a wide array of information from banking or financial information to driving history. To say this represents a river of data is an understatement. The insurance underwriter is faced with the task of drinking from the fire hose. Although most, but not all, of these disparate sources are developing emerging standards for this data, the standards for one source often vary widely from the standards for another source because each source is focused on satisfying a different business need.
Each insurance company has its own set of underwriting guidelines to help an underwriter determine whether or not the company should accept a risk and at what cost and with what restrictions. Once an applicant for insurance authorizes the company's access to various pieces of information, the underwriting process uses the information to evaluate the risk of the applicant for insurance based on the type of coverage involved. Insurance companies sometimes use automated underwriting systems to deliver an underwriting decision.